“Don’t tell me what you value, show me your budget, and I’ll tell you what you value”
Who wants to take the time to create a budget and actually stick to it? It takes time to review what you spend, where you spend it, and how much (or how little) you bring in relative to your expenses. Plus, you could be in for a really rude awakening.
Nevertheless, if you have dreams of buying a home, paying off debt, taking that exotic vacation to the Maldives, or having money for retirement, planning is vital to your success. And the first step to securing your future is to be aware of how you spend your money.
As entrepreneurs, it’s even more vital because you have a budget for the business and your personal finances. For most, they don’t do a great job at either and it increases stress while hurting the profitability of your business. We all know that if business is not going well, that will carry over to our personal life as well!
If you don’t have a budget, here are a few reasons that you’re doing yourself and those that you’re responsible for a huge disservice.
Your spending is not in line with your priorities
If you’re not sure how much you spend and exactly where you spend it, changing these habits will be challenging. Even if you’re financially comfortable, a budget will help you identify unnecessary expenses and figure out ways to redirect funds towards your priorities. For example, if you don’t realize that you’re spending $200 on eating out and $100 on magazine subscriptions each month it becomes very difficult to break that habit and redistribute those funds toward important priorities such as retirement or that new home.
You aren’t prepared for emergencies
Life is filled with unexpected surprises, some pleasant and others not so much. When you get laid off, become sick or injured, go through a divorce or have a death in the family, it can lead to some serious financial turmoil. Of course, it seems like these emergencies always arise at the worst possible time — when you’re already strapped for cash. This is exactly why everyone needs an emergency fund. An emergency fund is 6 months of living expenses in your savings account. This extra money will ensure that you don’t spiral into the depths of debt after a life crisis. Of course, it will take time to save up six months’ worth of living expenses. Don’t try to dump the majority of your paycheck into your emergency fund right away. Build it into your budget, set realistic goals and start small. Even if you put just $20 — $30 aside each week, your emergency fund will slowly build up.
You’re not in control of your life
If you feel like you are not in control of your money and you are continuously questioning where it went and what happened to it, budgeting can put you in control. Budgeting allows you to prioritize your spending, track how you are doing and realize when you need to stop. It puts a solid plan into place that is easy to follow and gives you the chance to plan and prepare for the future. It is the biggest tool you have to change your financial future and it gives you the power to make changes starting immediately.
To build wealth
Once you have a clear view of your overall financial situation, you can shift your focus to aggressively eliminate debts and build wealth. After solving any personal debt issues, get in the habit of putting a certain amount away monthly. This is where wealth building begins! As your savings and investments grow, you’ll be able to generate a passive income from interest payments and capital gains while still using your actively generated income to budget for monthly expenses.
Creating and following a budget can be difficult in the beginning, as it requires sacrifice and self-discipline. Be sure to keep your budget up to date regularly so that when things change, such as a raise or unexpected expenses. With all of this hard work be sure to reward yourself, acknowledging your success is a huge motivator.